Help Centre

BHP's focus tightens with shake-up

In February when Andrew Mackenzie was chosen to succeed Marius Kloppers as chief executive of BHP Billiton, he promised a "laser like focus" on productivity as commodity prices settled and windfall profits dried up.

In February when Andrew Mackenzie was chosen to succeed Marius Kloppers as chief executive of BHP Billiton, he promised a "laser like focus" on productivity as commodity prices settled and windfall profits dried up.

Kloppers also recalled that soon after he was appointed in 2007, former BHP chief executive Paul Anderson told him to think about who would replace him, and hire accordingly: Kloppers put a call into Rio Tinto where Mackenzie was working, and offered him a job.

The sweeping management changes that Mackenzie announced on Thursday address both of those issues, and the tougher environment he is facing is underlined by the separately announced details of his remuneration package. It is between 20 and 25 per cent less valuable than the one Kloppers has, setting a post-boom benchmark that will feed down through BHP's ranks.

Mackenzie is flattening BHP's management to tighten the focus on five large businesses - petroleum (which for the time being will also contain BHP's embryonic potash venture in Canada), copper (which has had its importance recognised by being broken out from BHP's other base metals businesses), iron ore (the superstar during the boom, and a focus of Mackenzie's productivity drive as iron ore prices cool), coal (Mackenzie is combining the coking coal and energy coal businesses) and aluminium, manganese and nickel (BHP's least compelling assets, and ones that are exposed now that copper has been spun out).

The top management committee has been expanded from eight members to 11, which is a lot, but the heads of the five divisions, including iron ore boss Jimmy Wilson, coal business boss Dean Dalla Vale and copper boss Peter Beaven are now on board. The business heads will report directly to Mackenzie, along with the leaders of key corporate functions including finance (Graham Kerr, unchanged), and legal affairs (Geoff Healy, head-hunted from Herbert Smith Freehills where he counted BHP as a client). All are potential successors now.

Two executives who were in the race to replace Kloppers fall out of the new succession equation. Chief executive, aluminium, nickel and corporate development Alberto Calderon will leave the top management committee but remain as an adviser to Mackenzie until mid-2014 as he works on uncompleted strategic projects. Marcus Randolph, who oversaw BHP's iron ore and coal businesses, will leave the top committee on May 10. He is on sick leave, and his role will be clarified by the middle of this year.

The executive who led BHP's $US20 billion push into oil and gas shale in the United States, Mike Yeager, will also depart, on July 1. He will be replaced by the current BHP diamonds and specialty products boss Tim Cutt.

The restructure would give BHP clearer oversight of its biggest businesses "in a world that is unlikely to enjoy the pricing environment we have seen in recent years", Mackenzie told BHP employees, and prices certainly are under pressure. The iron ore market price has fallen 12 per cent since February 20, for example. Copper, nickel and aluminium prices have fallen 15 per cent, 18 per cent and 13 per cent respectively since early February.

This is a big management shuffle, and it inevitably creates some uncertainty.

There are seven new direct reports to Mackenzie, and only three members of the old committee have survived: markets and technology boss Mike Henry, who has also been handed responsibility for health and safety, chief financial officer Kerr, and human resources and public affairs head Karen Wood.

The new team needs time to meld, and with more reporting lines coming into him in a structure that brings him and his lieutenants closer to the operations, Mackenzie is going to have to guard against being drowned by detail.

The speed with which he has moved suggests that he is not a ditherer. He does not formally become CEO until May 10, and has announced management changes that phase in from that day.

The final verdict on the changes can, however, only be delivered after BHP shows how effectively it is delivering against Mackenzie's productivity growth blueprint.

Some might question BHP's continuing commitment to its US shale assets given that the executive who led their acquisition, Yeager, is departing. (Yeager's replacement, Tim Cutt, has deep petroleum experience, and like Yeager is a former Exxon senior executive.) However, US domestic gas prices that forced a $US2.8 billion write-down of the shale assets last year have been steadily recovering.

Mackenzie told BHP staff on Thursday that the US shale expansion was a success, and the restructure if anything confirms it and the petroleum business as one of BHP's four big pillars, alongside iron ore, copper and coal.

IMPORTANT: This information is general financial product advice only and you should consider the relevant product disclosure statement (PDS) or seek professional advice before making any investment decision. Product disclosure statements for financial products offered through InvestSMART can be downloaded from this website or obtained by contacting 1300 880 160. You should consider the product disclosure statement before making a decision about a product. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.